Granite’s Q2 profit, revenue dip as company continues strategic shift

Dive Brief:

  • Infrastructure builder and materials producer Granite Construction saw its profits and revenue fall from this time last year, though both metrics jumped from the previous quarter. The company is burning through its portfolio of less profitable projects as planned, and doing so caused its profit margin to take a hit, the company’s president said in a second quarter earnings call Thursday.
  • The Watsonville, California-based contractor lowered its EBITDA margin guidance for 2022 from 6%-8% to 5.5%-6.5%, but its projections for revenue and other metrics remained unchanged. Granite’s operating income stands at $5.5 million in Q2, down from $34.8 million during the same period last year. 
  • Granite’s backlog grew 7.1% from last quarter to $4.2 billion, with California leading its markets. President and CEO Kyle Larkin said he expects to benefit from the federal Infrastructure Investment and Jobs Act in the second half of the year, and also plans to wrap up the less-profitable projects in its old risk portfolio.

Dive Insight:

The company’s profits in Q2 stood at $78 million, down 20.4% year over year, but up 56% from Q1. Granite’s revenue for Q2 was $768 million, down 8% from the same period last year and up 40% from last quarter. Its long-term debt fell to $288 million, down $52 million year-over-year.

Granite’s materials business benefited from higher costs of aggregates and asphalt, but overall the company was still hit by higher fuel and other materials prices, Larkin said. 

The company made two strategic moves with its materials business in Q2. First, it bought a greenfield aggregate operation in Grantsville, Utah, which it plans to use to supply materials for builds in its key market of Salt Lake City, which is growing steadily. The company also bought a liquid asphalt terminal in Bakersfield, California, to allow it to store asphalt and manage the volatility of oil prices and supply chain snarls.

The company plans to sell off its remaining two Water Resources and Mineral Services businesses. Larkin said he expects to close on the sales by year-end.

Another difficulty the company has seen is the lack of workers for all different roles.

“We’re seeing a historically tight construction labor market become even more competitive as we emerge from the pandemic. The current labor market is the most challenging I’ve seen in our industry,” said Larkin. “These challenges exist at all levels, from craft to project executives.”

To address this and to staff up for infrastructure act projects, the company is focusing on worker experience and safety. In Q2 its injury rate — a key metric for worker morale and engagement — was the lowest it’s been in recent history, as were the severity of the injuries, Larkin said.

Looking ahead

Larkin also said during the earnings call the strategy of focusing on key markets is working, though “we are not yet where we want to be.”

Previously, Granite said it is transitioning away from megaprojects and public-private partnerships and toward smaller infrastructure contracts in regions where it sees the most activity, like California, Utah and Arizona. The company president said he expects the infrastructure act to boost the number of available projects in the near future.

“We have not seen any benefit from the infrastructure bill in the second quarter,” Larkin said. “We believe the bill should result in an increase in opportunities in late 2022 and then carry into 2023.”

On Thursday morning Granite stock fell more than a percentage point from its market close of $30.4 on Wednesday, but it moved to $29.96 a share by the end of the day. The company posted a loss of $0.05 per share for Q2

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